INVESTORS’ PARADISE

With parallel growth in all sectors, private equity investors, both domestic and foreign, are having a field day in Turkey.

SELÇUK YORGANCIOĞLU

Senior Partner & Country Manager

Abraaj Turkey

EMIN HITAY

Chairman

Hitay Holding

Tell us about your decision to enter the factoring sector. What growth potential did you see there?

EMİN HİTAY In 2009 the factoring sector was $30 billion in size, in 2010 it was $50 billion, and it is expected to become a $100 billion by 2014. I decided to invest in factoring because SMEs are encountering difficulties in working with banks and turning their receivables into cash quickly. I saw a lot of potential and thought that the market growth would continue in this sector. That's why we ventured into this field. I'm very happy with the business at the moment.

How did the global financial crisis affect Turkey?

SELÇUK YORGANCIOĞLU I think Turkey came out stronger from the crisis due to two reasons. One reason is that Turkey has a single-party government that can make decisions and execute them with ease. The other reason is that the regulatory bodies have been strengthened, such as the Capital Markets Board (CMB), the Istanbul Stock Exchange (ISE), the energy regulator, the competition board, and the Banking Regulation and Supervisory Board (BRSA), which should get a lot of credit for pushing banks in the right direction during the recent crisis. These institutions are of the same quality as regulators in Western countries. As a result of strong single-party government, a well-functioning regulatory system, healthy banks, and awareness in the retail and corporate industry, Turkey has survived the crisis better than other countries in the region. Another thing to add is that Turkey isn't highly leveraged, especially compared to other countries in Europe, particularly southern Europe. Also, Turkish corporates and retailers are used to doing business with their own cash, and traditionally there's far less reliance on banking capital. That meant that companies have managed to get through the crisis without any major corporate defaults. In the last 20 years, education has improved significantly, wealth accumulation has grown, and Turkey has begun benefiting from its geographical position between Europe, Asia, and the Middle East. Until 10 years ago our business relations with the Middle East were very minimal, and that's changed significantly. Turkey has also become closer to the EU, at least commercially and economically. I think that has to continue and we should continue to strive for full EU membership.

Can you tell us about your transaction with Intralot of Greece?

EH In 2002 we won a bid to take over the Spor Toto betting organization in Turkey, It only had pari-mutuel games with $17 million in annual revenues at the time. Our consortium evolved as Inteltek A.Ş. following the winning of the privatization tender and we created Iddaa, which is the first “fixed-odds betting" platform in Turkey. We then partnered with a Greek company called Intralot that had experience in fixed-odds betting. In partnership with Intralot we had big success with Iddaa in Turkey and our revenues in the first year, 2004, were $164 million, while the second year's revenues jumped to $985 million. We then decided to sell our 20% share in Inteltek to Intralot for $80 million.

Around the same time we established Bilyoner.com, which is an online betting platform on which people can bet Iddaa online, buy lottery tickets, and bet on horse racing. In 2010, Inteltek posted revenues of $2.5 billion. I still own a 20% share in Bilyoner.com, and it has been a spectacular success story. A lot of people look at this transaction as a model.

Can you tell us a bit about your hospital investment, Acıbadem?

SY Health care is a growth market, and Turkey is a pioneer in the region due to the quality of its doctors and nurses. We figured Turkey would be a good hub to begin with. When you look at health care here, though, it seems disorganized and it's difficult to find companies that have good corporate governance and financial discipline. Looking across the whole region, we identified Acıbadem as the right candidate for us. It has good corporate governance and financial discipline. When we went in with Acıbadem it had six hospitals. By the end of 2010 it had 11 hospitals and eight polyclinics, with two more due to open in 2011. It was able to invest during the crisis and expand its business. We're currently negotiating some more add-on opportunities. The good thing about health care is, like I said, inelastic demand. As long as you provide the right kind of quality, you sell whatever you produce.

You obviously saw great potential in the IT sector. Where do you see that sector going today?

EH There are now about 30 million internet users in Turkey. Turks use it mainly as a source of information, shopping, email, and social media. There are a lot of internet companies, but most of them are copies of international peers. That's the trend worldwide.

How important is Turkey for Abraaj Capital?

SY Very important due to its size. It's the second largest economy in our portfolio after India. It's also the longest established democracy in our region with a very stable market. Our investor base likes seeing the blend of Turkey, Egypt, India, Saudi Arabia, Jordan, Pakistan, and the UAE. The interaction between these countries continues, and Turkey plays a key role in this interaction and regional integration. Turkey will keep getting more and more important.